Video, commerce and being a girl founder in the big city

I don’t really follow professional sports. I like college sports better because they make a lot more crazy unexpected mistakes and the game is much more exciting. And I went to Michigan, so go blue.

But there was a great article in the New York Times about Derek Jeter, and how people try to chat with him when they’re on second base (apparently he’s a second baseman). The article talked about how, while not chatty to press, he is very chatty with other players while he stands around second base. He must be aware at this point about how his stature affects other ball players, but he works hard to make them feel comfortable and give them encouragement. He uses words like “I’m proud of you guys” which shows he understands the role he can play as a captain.

What’s interesting is that the encouragement is not limited to his own teammates, but to the opposing team’s players who happen to have made it to second base. I found that a strikingly simple concept that can often be overlooked by CEOs. You need to focus not just those who are directly dependent upon you (your team). You also need to focus on the success of others to make the game great. That can extend to people who are not on your team, and whose success does not directly bear on your own. That level of self-confidence, and long-term outlook to improve baseball is demonstrated by Jeter subtly, and without fanfare. Yet it makes a tremendous impact that leaves a lasting improvement on the game as a whole. I draw similarities to female CEOs who need to support other women CEOs publicly and privately. We all need encouragement and support, but to get it from industry captains and each other would be priceless.

The thing that disturbs me the most is that many of the name callers have been other successful women in business. Women in the media, women in power, women across the conference table, women at cocktail hours. I cringe any time a woman in power is attacked…there are so few of them that the attacks always strike me as somewhat personal. However, when the attacker is another business woman…it really sends me for a loop. And a tweet by Lena Dunham crystallized my thinking:

Advancing the Cause

Ladies, the mere presence of Sheryl Sandberg and Marissa Mayer in top executive slots is advancing the cause with an impact about which we can only dream. When only 3:100 top CEOs are women, their presence is outsized as a win for us. Having women who are competent, well-spoken and experienced putting themselves forward in positions of power furthers our cause. These are executives who want to grow businesses, create jobs, push their product forward. And, thanks to all that is holy, they are women and not men.

That, ladies, is advancing the cause of gender equality in the workplace.

The narrow expectation that women in power can only advance the cause by LITERALLY making pro-women decisions is myopic and misguided. We have been at this for hundreds of years, and probably for hundreds more. Whether we personally feel that one policy decision each female CEO makes is supportive of women in the workforce is inconsequential. Much more at stake at this point in our struggle is the fact that it was a woman who was empowered to make that decision. I look forward to the time when all women have to do to advance the cause is make a bunch of empirically pro-feminist business decisions. In the meantime, the fight right now is just to GET into those positions of decision-making.

Bad Attitudes

What does not advance our cause are people who tsk-tsk, and finger-wag at the women who finally, finally havegotten to the top of the corporate pyramid.

Sheryl seems to have pissed everyone off by ‘blaming the victim’ since she herself is far from a victim. Whether or not you agree with her, making an impassioned monologue about how she’s wrong serves two separate purposes. One, that you are smarter than her. And two, that the most powerful tech woman in the world isn’t as smart as you. I’m pretty sure at least that second perception, when repeated thousands of times in blogs, news stories, and tweets, is not good for Sheryl’s success. And when you go further and take her quotes out of context and criticize a book you haven’t bothered to read, then I need to ask: do you really think you’re furthering the cause by making sure everyone knows you are right — or possibly hurting the cause by making sure everyone knows Sheryl is wrong?

Marissa Mayer can move us forward by being an extraordinary CEO that turns a really messed up company around, when no man could do it before her. In a world where only 1.5% of CEOs in the world’s 2,000 top performing companies are women, we need her to make Yahoo! one of those top performers. She is not making decisions to ‘tweak’ the H.R. dials at a company that has lost over 40% of its value over the past 5 years. She’s trying to save it. And the more outlandish questions she has to answer about whether she’s anti-woman or anti-mom, the more she will not be able to accomplish that.

Do you want to be right? Or be equal?

Women need to recognize that the constant attention to the failure of these high profile women is the foundation upon which illogical, misogynistic gender bias builds. A Darden study found that the stock in a company drops after announcing a new female CEO, but not when new male CEOs are announced. Gender is mentioned more in the articles that write about those new female CEOs than those about new male CEOs. Being female is wielded as prima facie evidence that we will fail.

Influential women attacking other high-profile women helps strengthen that large, sexist misinformation beast. The re-tweeted shortcomings of women in power weakens us as a gender much, much more than your being right advances it. The relentless, full-throated attack by women on other women is what resonates and remains the retardant of their, and all of our, career trajectories.

I’m not saying support these women blindly and suppress your own opinion. I myself don’t necessarily agree with the individual positions these women have taken. I am saying, though, take more time and thought in why, how and when you criticize them. Take the time to think about how others will (consciously or not) use the negative momentum you create to hold us back as a gender. I’m asking you to play the long game.

In the tallest poppy syndrome, we cut down figures who have risen to places of power in order to raise our own stature. Trust me, ladies, there will be no lack of other people to cut the Sheryl, Marissa, and Megs down. You don’t have to prove you can do it better.

Whether or not Sheryl and Marissa can make their companies successful, we need to pray to the Fortune 500 gods that they can. Only that spectacularly hard-earned level of win can truly move the underpinnings of the workplace gender-bias from where it exists today.

TL;DR:

The re-tweeted shortcomings of women in power weakens us as a gender much, much more than your being right advances it. The relentless, full-throated attack by women on other women is what resonates and remains the retardant of their, and all of our, career trajectories. Get a hold of yourself.

This post is a follow-on to the discussion about a large-conglomerate offer to a smaller company. Having gone through an almost-deadly major investor deal, I wanted to write more about how to avoid our mistakes. One area of focus could have been making sure that an operating partnership gets struck…if they’re really interested, they will jump at the chance. A partnership, if done correctly, can help you survive any eventual unwinding with your dignity and company in tact…and possibly better off (see third example).

1. Conduct a ‘test’.

So, I like this one the least. I find that tests between companies can fail on multiple levels. 1) The wrong test set-up, so it was never going to work, 2) testing the wrong attributes of the partnership so drawing bad conclusions, 3) lack of time to prove the true value since Rome wasn’t built in a day. I have found that tests often mean “we’re not sure”, as opposed to “let’s blow the doors off this thing!”. There was a NYC digital content company that jumped through hoops and hoops with a large portal. They showed lift in click through from content, lift in ad effectiveness, lift in SEO. Lift, lift, lift. In the end, it was a positive test, but the conglomerate couldn’t see the test being actualized at scale. It’s hard to show you’re going to drive tens of millions of dollars when you drove a few bucks in a few months. There’s a lot between here and there, and all the doubters can poke holes in any test methodology.

2. Is there a sales channel opportunity?

This one is hard, unless you’re already on the rails. Merging anything is a challenge, but it’s especially hard to motivate teams to commit to the hard work if there’s no actual deal in place. Your sales team needs to hit their numbers, and were planning on doing it without this partner. They would need to be convinced that the ‘distraction’ from their plan will be worth the effort. If it was such a slam dunk, why wouldn’t they have been pushing *you* for it in the first place. On the conglomerate sales team’s side, they will need some vig. Assuming it’s a seamless add-on, they’re happy to sell more if they make more. Some components that should align in order to make it work are: 1) if you are finding that you are already heavily overlapping in clients, 2) that you are meeting with the same people, and 3) both your money comes from similar budgets, so your company can tuck in to the larger buy quickly to prove 1+1=3. My guess is, again per my last post, someone from their sales team would be the investment’s business ‘owner’ already…he would understand you enough to put his own job behind your numbers. If it’s being forced on anyone…it’s time to ask yourself if the sales channel opportunity is too risky to bet the deal on.

3. Can they be a customer?

This is the best structure under which to construct a ‘test’. Can they use your services themselves? Then, go get money from them. Use the contacts, momentum and support you have to construct a great vendor deal with their team, and come out the other side either being convinced it’s a great partnership, or with a nice big revenue check from them. What did you lose if the deals fall through? Nothing. What did you gain? A new customer. Either way, winner.

Trying to ensure that your big conglomerate investment or acquisition deal goes through is no enviable task. You rarely have the leverage to turn down the $6 bil Google offer, so how can you survive the process? First, be glad that you’ve changed someone’s game enough to be interesting even at your level of sales. Second, remember that’s the most valuable leverage of all.

I was at a CEO summit the other day where the discussion was, “What happens when the 800 pound Gorilla lands on your doorstep.” The question was in the context of a potential acquiror or strategic investor.

I think we all know what to do when you want to say no. Witness Groupon turning down a $6 billion acquisition offer. You just say no, thanks, and hope you’re right.

But what about when you want to say yes? How can you survive the 800 pound gorilla process to get to yes? Here was some advice offered by other CEOs, plus an additional treat describing EXPO’s experience with an 800 pound gorilla that went south a few years ago.

SIZE OF CONTRIBUTION: Generally, you aren’t of much interest to a conglomerate unless you are above $10 mil, on your way to $25 mil. At that point, no matter who the conglomerate is, they can imagine you having an impact on their business someday (mostly through sales integration with some other piece of their company). Another way to make it happen is to be a straight technology platform play, where it’s better to buy than build for them.
EXPO’s example: In our case, we were under these amounts, but tripling revenue each year. Being small probably made the deal much easier to kill.

ACQUIROR OWNS THE NUMBERS: Someone on their side HAS to own your numbers. Deals in conglomerates get vetoed by the CFO all the time…not because the CFO doesn’t believe in the business or the numbers. They will kill it because no one will step up to OWN the numbers. Believing in the numbers and owning them are two separate things. Believing means that the revenue growth makes sense to you. Owning means that you take responsibility, understand exactly where the revenue will come from, put your rep on the line that you/the team will make it happen. That requires a deep understanding of what you do, how you do it, and who your customers are. Depending on how closely your internal champion already knows and understands your business, that’s a lot to ask.
EXPO’s example: In retrospect, we had many operational champions who believed, but none who would own. I think the barrier to owning was that they did not truly understand our business. If you’re selling banner ads all day and shooting for 5% topline growth, I can imagine it’s very difficult to stand behind a evangelistic new media product that is planning to triple growth. (Which, btw, we did).

NO MARKET FLUCTUATION ON THEIR SIDE: Assuming the 800 pounder is a public company, one of the variables to check would be the gorilla’s own market stability. Any external market fluctuations in their industry, or hiccup in their own story for the Street can lead to unpredictable, last minute decision making. While the stars don’t have to align for the transaction to move to close, especially if you have a numbers ‘owner’ above, the stars definitely can’t be out of whack. In an unstable environment, new announcements like investments and acquisitions, even smart ones, become market moving variables they will not want to introduce.EXPO’s example: 2 weeks after our deal went south, the other side announced lower revenues for the quarter, year to date, and the rest of the year.

I want to attribute many of these thoughts to a particular CEO, Adam Slutsky, who is CEO of Mimeo, a hyper-fast growing online, on demand document printing solution. He was also co-founded Moviefone, which was acquired by AOL and then stayed at AOL awhile. So, he was able to provide a lot of experience from all three of those vantage points.

Here is Bill’s email response to a ‘current multiples’ question by a colleague:

yes, most companies are going to be looking to sell (or finance) based off a multiple of revenues, even, typically, runrate or even forward revenues (so, not last years). So if someone wanted to buy us today and we were willing to sell, we’d say it had to be off our 2011 anticipated revenues

premium deals are trading at up to 10x. here’s a couple of examples of that:

OpenTable and Logmein – the two big tech IPOs last year – both went out at 10x revenues and have traded up from there

To get that level of multiple, though, you have to:

Be at a certain critical mass of revenues….maybe $20mil

Still be growing as fast as ever

Have strong market position (and even buzz)

Be in a sector where the revenues are perceived as recurring / sustainable, probably with one of two characteristics:

like SAAS or cloudbased software

network effects like Facebook, Twitter, etc.

So, VCs will try to do financings in the 3 – 5x revenue multiple range, with the idea that a sale will occur potentially at 5 – 10x revenue. That way, the VC benefits from two things: a) growth of revenues, b) multiple expansion

Here’s a great example of a range of acquisition outcomes in one story. Three acquisitions on one day by one company of similar companies with 3 different outcomes:

KickApps had $12mil in revenues and got bought for around $45mil….so 4x

Kewego had $10 mil in revenue and got bought for around $25mil…so 2.5x

Kyte had $4mil in revenues and got bought for around $5mil….so 1x.

If a business is more of a “services” business….for example, like all of the people building Facebook apps…the multiples are going to be lower – say 2 or 3x – with two big caveats:

If they are CRAZY profitable.

If the space is on fire (Facebook servicers) and they are perceived as a leader. Like Vitrue, who just raised $17mil. But even others in that space have gotten far less attention because at the end of the days, its just time and materials

With all of that context, the bottom line is that valuation is driven by two things (as with any company) and if you keep your eyes on these two balls, you definitely won’t sound crazy to the guy on the other side of the table:

Company context. If the company is running out of money without a plan, or the CEO has quit, there’s a looming competitive threat, or even there’s only one buyer….valuation is going to get hammered. The difference between a 10x exit and a firesale is often breathtakingly slim. The ability to accurately “sniff” a situation is critical to getting to the ‘best’ answer

If that’s what you get from Bill in an email, imagine how insightful he is in person!

Within the past 6 months, some well-run, well-funded NY new tech companies have been wholly acquired by major conglomerates. Cafemom also seems up for grabs, rumored to be sought by Yahoo. By the time this post is up, I understand Quidsi/diapers will also be gone.

So, why would these companies, with relatively good growth metrics, sell at the bottom of the ‘great recession’? Why not hang on 1-2 years for the inevitable multiple expansion on top of higher revenues? Even 5min, with the healthiest acquisition multiple of the bunch, had people guessing why they would have sold now as opposed to waiting for better multiple post-recession on obviously expanding revenue.

There are multiple considerations that may have made selling today the right decisions for these companies despite strong growth prospects. Many of these we lived ourselves at EXPO at some point. Overall, while it’s generally a buyers market, other factors can make it the right time for founders & investors to look past doubts about selling in a downturn. My co-founder, Bill Hildebolt, and I came up with a list why we think we’re seeing so much sales activity that we personally know all too well.

Unplanned need for cash driven by slower sales
In an economy marked by corporate spending decreases, many newcos are experiencing lower than expected sales. Usually a remedy for this would be lowering costs. However, many new tech companies have high fixed costs – people – which means that cutbacks are not easy to make to maintain support of existing clients (not to mention severance, etc.). For many of these companies, you can’t lower costs by just buying less plastic and then making fewer widgets. With lower than planned revenues, and an inability to lower costs correspondingly, companies find themselves needing to raise money either a) faster than anticipated, or b) more than anticipated. Either way, VCs, insiders, even angels, aren’t attracted to that type of story.

Poor terms when capital is available
Raising capital in most markets isn’t something executives dream about (well, maybe in their nightmares). But in this market, terms could have been so unattractive that an early, but fair exit became a better alternative. While we’ve heard there’s money out there for seed, and for strong B rounds, there doesn’t seem to be a lot for ‘follow-on’ A rounds. Plus, you’d be trying to raise capital on revenues that you feel don’t reflect your true value, on multiples that are currently depressed. Who wants to do that for a year?

Cash wasn’t just king, it was also queen.
Conglomerates started hoarding cash into the downturn. They cut costs quickly and found other ways to raise cash. They’ve continued to hold that cash even as their P&Ls have stabilized. At the same time, interest rates are at historic lows and so there’s no return on that cash. An attractive use for cash in that environment could be to ‘buy growth’. With their own shares depressed in the market, conglomerates are using 100% cash as the payment consideration — with Quidsi being the latest example with $500 mil rumored to be in cash. All of the ongoing business deals listed above were for reportedly all or almost all cash. Knowing that immediate liquidity was possible, many VCs or angels may have just decided that an all-cash acquisition proposal was too good of an opportunity to help them balance their own portfolios. Cash isn’t appearing every day for them, and many are tapping out of old funds but haven’t raised new ones. They may have put pressure on executives to liquidate because of a premium they may have had for the cash.

What’s the opportunity cost of holding on?
Despite growth, promise, and great product, executives might have just run the numbers and not liked what they saw. With IPO markets far from frothy (albeit also very far from dead), and a potential hard road for revenue growth for a few years, some founders might have just run the numbers and decided cashing out now was in their best interest. It’s been a tough two years for most of us, and it’s easy to decide you’ve ‘topped out’ on your personal risk-reward returns for the next couple years. Most of us entrepreneurs don’t display the reserve of Mark Zuckerberg, who said “I don’t think I’m going to have another idea this good for a long time.” Most of us think we have an idea every minute.

My co-founder and I have gone through almost all of these stages since founding the company. Sometimes in the down market, we’ve run the numbers, not liked what we’ve seen, but either had the foresight or plain luck to not have been forced to make any decisions at that point. Most of that credit goes to my partner, Bill, who planned our financials knowing that “Most companies don’t go out of business because they’re bad businesses. They go out of business because they run out of cash.” As our headlights become longer now as our business model has taken shape, it helps us project that the wait will be well worth it.

Congrats to the execs who have found their right exit now, and here’s to the rest of us who are intending to find it later.

“…here’s a strong retort for those moments when the brand manager asks of the agency: “can you make me a viral?” Instead, it turns out, offering your customers a superior product and a compelling narrative has the potential to be even more persuasive than a handsome man on a horse.”

“Maybe it’s too early to boot the creative team, but the findings of the study do suggest that marketers have been underestimating the persuasive power of user-generated video.”

The conclusion drawn here was that there is more to user-gen video for marketers than skateboarding cats. Viral videos became a standard agency product because they were something agencies and brands understood: eyeballs…a lot of them…and quick! They knew how to price that, they knew how to count that, and they knew how to sell that. They slammed a new medium into the template of the old.

So what is the template of the new medium?

A surprising study by Next New Networks and Youtube shows that entertainment video created for the online platform actually does better online than video created for other mediums, such as TV shows. It seems that viewers appreciate and respond to the differences when content is tailored to the platform they’re watching it on.

Applying that to a marketing video…if a TV commercial was made to interrupt an experience on a lean-back platform, why do we think that same video will work on when viewers are searching for content on a lean-in platform?

I believe that consumers online crave a different kind of video than that which is available on and created for television. They want information & searchability (web 1.0), they want control & engagement (web 2.0), and they want personal connection (web 3.0). Agencies, brands and publishers should focus on how to merge those strengths of this platform to develop the right video content for this new space and move beyond using the old video content for this new space.

In one of our first major studies, we think comScore hit it out of the ballpark. Their major conclusions:

User-gen videos about products can contain elements that make them as or more persuasive than professionally produced TV commercials. That means that consumers, without any direction or experience, can create video content that naturally hits elements that have been found to persuade shoppers to buy products. These are elements that TV commercials strive to portray, and elements that brands spend millions of dollars to try to convey.

User-gen videos can contain persuasive elements usually not found in traditional TV commercials.The study was not meant to test for this, but the finding became obvious when we stacked up the strengths of our videos against the strengths of TV commercials (and also against other digital media content). What we found was that there was a very complementary nature of our strong attributes vs. TV commercials. One example of this would be our videos hit elements around product convenience and quality…two attributes that are found in less than 10% of TV commercials.

EXPO’s community and team put together some highlight videos to help kick off the conference by the Altimeter Group. The topic was Rise of Social Commerce, and is streaming live via uStream. We hope our videos help remind attendees that the “Social” part means people, not technologies. (The 10,000 watt speakers might have blown out some audio in the Four Seasons…sorry about that.) Until Matt Cheuvront gets off his duff and puts this up at the conference site, here are the videos in all their glory:

Overview of Social Commerce

Mobile usage

Desire to share online

There were some questions about how we selected these folks, in order to give context about the demo reflected. Because these videos were meant to complement Altimeter’s framework, our reels were created quickly after the first draft of the research was completed by Lora Cecere. So, we didn’t balance the diversity for them as we usually would for client engagements. We put out a broad request to our members, and these were the folks who responded rapidly. Would love to delve further into what other demos think about social commerce as well…please contact me anytime!

Unconstitutional. It’s such a cool word. As an American, it evokes the most powerful feeling of wrong. It doesn’t matter what it is, if it’s unconstitutional, you know it’s wrong.

Guess what the Harvard Law Review called unconstitutional. The FTC’s Endorsement and Testimonial Guides covering consumer generated media. The one that told bloggers that you had to disclose certain things if you wanted to write about it. The one that made you feel like some kind of slimy lowlife for being influential enough to be asked to test free products. The one that said newspapers didn’t have to disclose anything at all.

There are many parts of the Guidelines and the FTC’s actions that troubled me. First off, the thought that any group of people could smartly legislate something so nascent and developing like social media seemed like a non-starter. The brightest minds in the country don’t know where social media will take us…where is the value that will be pursued? what are the metrics that will be measured? what is the activity that will be developed? Sure, if there is obvious social malfeasance going on that is not readily fixing itself, then the government can say they are compelled to take an interest no matter what stage an industry is in. Especially if you’re just extending rules you have in place for, say, legacy media. But I really had to ask myself whether the need to identify those bloggers who partied with Ann Taylor required the government to set new rules for emerging media that differ than those for legacy media? And while I’d love to hear the FTC opinion because I’m sure they’ve studied it carefully, I think issuing Guides as opposed to encouraging discussion was irresponsibly, innovation-chillingly early.

The second point of trouble for me was the apparent limiting of free speech that I thought the guidelines promoted. Having helped develop one of the only open social platforms for consumer product discussion, I am especially sensitive to anyone telling me what my members can say, how they can say it, and pretty much any interference at all. Being brave enough to let total strangers benefit from your experiences is just one of the overwhelmingly powerful advances of the new social web. Therefore, what bothers me is the encroachment on my community’s free speech on a platform specifically built to let them speak in a safe, relevant and helpful environment. I work on it every day, and have for years. We are constantly debating what the exact right mix of moderation, disclosure, community mores, and content guidelines is best to make our our library of experiences valuable and helpful to other consumers. The market, our clients, the community, and the users of our content are still helping us determine what is helpful, what is irrelevant, what is valuable. If I had known the FTC had all the answers, it would have saved me a lot of entrepreneurial time.

Before stepping in and potentially chilling innovation or free speech, the government should always ensure that 1) there is a compelling state interest and 2) the limitations on speech they put in place are as tightly defined as possible. I don’t think either has been addressed in these Guides.

At the risk of being Googled by the FTC, and because I’m not a lawyer so I didn’t really have a cogent POV, I didn’t write much about it. See my very ‘factual’ blog post here. So, I was happy to read that while the Harvard Law Review wasn’t as morally outraged as I was, they were as legally peeved. I first found the HLR article through some bloggers, and even loved that the HLR cited a blog in their article. All this analysis (some more emotional than others) gave me the backbone to write about it now.

The Headline: Unconstitutional

Within the first paragraph, the HLR stated “the Guides should be ruled as unconstitutional as applied to unpaid bloggers.”

The reaction in the blogosphere to the FTC’s announcement of the rules was unsurprisingly negative. Bloggers expressed particular concern that the rules were overbroad, exceedingly vague, and expressly did not apply to legacy media. Bloggers are right to be upset; the Guides violate the First Amendment. The Guides treat blogger endorsements as advertisements and attempt to regulate them as such. Unlike other speech, advertising is considered commercial speech and thus receives reduced First Amendment protection. However, under current Supreme Court doctrine, unpaid blogger endorsements should be classified and be given the same protection as noncommercial speech, just like product reviews found in traditional sources. Courts should therefore apply strict scrutiny to the Guides and hold them unconstitutional as applied to unpaid bloggers. The burden the Guides impose, as well as the unfairness of holding bloggers to a higher standard than legacy media, supports this result. (HLR)

There is a high bar to defining speech as commercial speech

The big revelation in the HLR article that is never addressed in the FTC Guidelines, but I think should be, is why they have determined blogger writings are “commercial speech”, and therefore subject to FTC legislation. Non-commercial speech, as you can imagine, is well protected by the First Amendment. So when does speech that you say, write or video cross the chasm from non-commercial to and turn into commercial speech? There’s actually a test that has been developed through the courts. It’s called the Bolger test, and it is very tightly defined since the threat to infringing on non-commercial speech is very serious business to the law. There are three pieces of the Bolger Test, and if all three are positive, then there is ‘strong support’ that the speech is commercial:

The speech refers to a specific product

The speech is conceded to be some sort of advertising

The speaker “has an economic motivation”

The last one…the speaker’s economic motivation needs to be “where the speaker’s main goal is either to sell his own products or to get paid by the product’s manufacturer.” (HLR) Clear cut cases of commercial speech include where the blogger was employed by the manufacturer to blog about their products in a positive light. A direct economic relationship seems to be nothing short of: “I pay you directly in exchange for stating these positive things about my product.” Anything short of that should fail the Bolger test and be seen as noncommercial speech. Free product that is not directly tied to your agreement to write a positive review in return is not a black and white case to be legislated. The HLR states, “Even where a blogger’s positive endorsement might yield a benefit in the form of free products in the future, the blogger’s speech is not fundamentally premised on a direct economic relationship between the company and the promoter.”

Assuming the FTC considered the Bolger test in order to decide it had the right to legislate your language, it seems to be concluding that the economic benefit of receiving free products in many cases is the main reason you wrote favorably about the product. It overrides the possibility (probability?) that sharing your expertise and experience with others was actually the main reason you wrote about the product, and getting the product for free was the way you could accomplish that. The possibility (probability?) that you thought you had some kind of expertise that would be worth sharing with others regarding the evaluation of the product, as opposed to the need to get someone to send you a freebie. No, by broadly sweeping free products within their authority, the FTC is stating that the main reason you wrote positively about that product was simply because you wanted to get that free product, or more of it. It’s a demeaning and dangerous overreaching.

Why should the FTC’s disclosures bother me as a blogger?

Make no mistake that by requiring disclosure, the FTC is saying that your opinion is commercial and you wrote your content in order to receive a freebie. Your content is seen by the FTC as no less biased than if you were sent a paycheck by a manufacturer and your staff title was “Positive Blog Poster About Our Products”. By requiring you disclose your bias, the government is saying that your speech is equivalent to an advertisement, and not free speech. The government believes they need to protect people from your point of view, and seek to diminish the impact of your opinion with a disclosure.

A blogger who does not wish to disclose receipt of free products may seem an unsympathetic case, but there are nonetheless important free speech principles at stake. The Guides require disclosure of the mere fact that the product was provided for free, whether or not an endorsement was written in exchange for free products. This required disclosure directly interferes with the content of the speaker’s expressive message. Disclaimers have an “inherently pejorative connotation” that reduces the effectiveness of the message, even if the speaker is acting in good faith. In addition, restricting a blogger’s receipt of free products makes it more difficult for the blogger to write any product reviews at all. Thus, in the name of protecting consumers, the Guides would deprive consumers of information. (HLR)

The HLR then even showed a better guideline that the FTC should have employed if it were going to opine about disclosure in order to not be found unconstitutional. The HLR suggested that FTC should have narrowed its recommendation that any actual quid pro quo between the endorser and the advertiser be disclosed (i.e., “If you do this, I will do this.”), or if there was actual intent to deceive the public. The HLR is saying, yes, the FTC might have been okay if they ruled that employees of manufacturers with the job “Positive Blog Poster About Our Products” should disclose that. But by lumping in all recipients of free product and not utilizing the tests for commercial speech clearly defined in court precedence, the FTC’s Guides were overbroadly infringing upon a basic right of free speech.

Favoring one type of media over another: A warning sign that you’re doing something wrong

The HLR took specific attack on the FTC for segregating speech in legacy media (ie newspapers) as being exempt from the bias that they put onto bloggers.

The FTC asserts that knowing whether a blogger received a product in exchange for consideration “might affect the weight consumers give to his review,” whereas knowing whether a newspaper paid for an item would not. But this distinction is unfounded. The material relationship between an endorser and a manufacturer includes not only the value of the free product, but also any other transactions in which they engage, like the purchase of advertising space in a newspaper. Paid advertising is a far more serious conflict of interest, both because its value is likely to be far more than the value of a free product, and because legacy media, unlike blogs, depend on it for their very survival. (HLR)

After centuries of scrutiny, imagine how high the bar needs to be for the Government to be able to interfere with the speech contained in the newspaper you read. The FTC has given our individual speech, now recently given greater exposure through the advancements in the web, less consideration. The HLR summarizes better than I could:

The Court has already ruled that the government may not legally prescribe editorial standards for newspapers; to do so would violate the First Amendment by interfering with newspapers’ “exercise of editorial control and judgment.” Yet the principle underlying the Guides is that the FTC may distinguish between blogs and newspapers based on its perceptions of “editorial responsibility.” Even if bloggers are, on average, less “editorially responsible” than print media, allowing the government to favor certain media forms would allow it to manipulate the “marketplace of ideas” just as direct interference with editorial content would. Worse, favoritism may encourage favored media to moderate their criticism of the government. As consumer-generated media gain an increasingly important role in our society, they should receive the same robust speech protections enjoyed by legacy media. (HLR)

Obviously, there is more to come on this subject, and more shoes to drop other than a few blog posts. I look for challenges to whether or not the Guides were necessary to achieve a compelling state interest, and to watch the FTC try to demonstrate that the legislation is narrowly tailored to achieve the intended result. Short of this, the policy should be radically reigned in.

TL;DR

FTC overstepped their authority by stepping on the Constitution’s right to free speech

The FTC needs to narrow WAY BACK to the strict definition of commercial speech: where you agreed to write something specifically positive in return for direct compensation. Samples for trial is not direct compensation. It’s…for….trial.